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From its office in Clayton, Missouri, Danna McKitrick, P.C., delivers legal representation to new and growing businesses, financial institutions, non-profit and government-related entities, business owners, individuals, and families throughout the greater St. Louis region and the Midwest.

Danna McKitrick attorneys practice across many areas of law, both industry- and service-oriented.

As most commercial attorneys in Missouri know, the previous Missouri statute governing receiverships, which was enacted in 1939 and consisted primarily of one sentence, provided very little guidance to attorneys, judges, or the parties involved. Missouri’s new receivership statute solves that problem. Effective August 28, 2016, and consisting of some 34 sections, the statute now provides guidance regarding the appointment of a receiver, the powers of a receiver, the rights and duties of the parties, and claim and distribution procedures.

A petition to appoint a receiver is now an independent cause of action. It does not need to be merely an “add on” request to some other claim the creditor has against the debtor. Receiverships can be instituted in order to dissolve an entity, enforce a lien, enforce a judgment, and other specific purposes, as well as any other situations in which the court may find a receivership appropriate.

Commencing a receivership is also a useful new way to resolve an ownership dispute or allow a majority shareholder to challenge a misbehaving management without destroying the business.

One of the most important improvements in Missouri’s receivership process is the requirement of notice to debtors. Unless the court specifically authorizes the elimination or reduction of the notice period, debtors are now entitled to seven days’ notice of any hearing involving the appointment of a receiver. The notice requirement pertains to all third parties known to the creditor, enabling them an opportunity to protect their rights as well. This is absolutely critical in that it provides time for the parties to negotiate a resolution of the problem, to review and object to the appointment or to the provisions of the proposed receivership order, or other aspect of the case, file a voluntary bankruptcy (or creditors to file an involuntary bankruptcy), or take other actions any party may deem appropriate.

The receiver is statutorily permitted to operate the debtor’s business and use its property in the ordinary course of business. The receiver is also permitted to sell property of the receivership estate, subject to notice in the hearing, and convey good title. Finally, the receiver is granted authority to pursue the claims and causes of action belonging to the debtor, compel relevant people to submit to examination by subpoena, and to abandon assets of which are of inconsequential value or burdensome to the receivership estate. In short, the statute provides a receiver with all tools necessary to do the job, and eliminates the need for the parties to rely on sometimes poorly worded receivership orders.

Another important addition to the receivership statute is the authority of the receiver to obtain financing for the operation of the business. The receiver is authorized to incur unsecured debt in the ordinary course of business, and, with court permission, to incur other unsecured debt. The receiver also can obtain additional credit from a pre-petition secured creditor or from a new secured creditor, with the court adjusting the relationships among them. The receiver is further authorized to retain professionals, such as attorneys, accountants, or Realtors.

And completely missing from previous receivership law are standard provisions relating to the claims and distribution process. Creditors receive a 30 day notice to file a written proof of claim, with supporting documentation, and the receiver has the authority to object to the claims. Once the receivership is complete, the statute provides distribution priorities so that, for example, administrative expenses and taxes are paid before general unsecured claims.

This new statute is a wonderful addition to the tools available for debtors and creditors to resolve their differences while respecting the rights of interested third parties. For all of the reasons set forth above, and more, I expect Missouri’s receivership process to become much more popular and reduce the need for more complicated, more expensive bankruptcy cases under the appropriate circumstances.

Posted by Attorney A. Thomas DeWoskin. DeWoskin practices in the areas of bankruptcy, creditors’ rights, and commercial law. He represents creditors, business debtors, and individuals with difficult or unusual financial situations. DeWoskin served as a bankruptcy trustee for the Eastern District of Missouri for over 35 years.